Wednesday, August 13, 2008

Fund wrecker back in business

(FT) Brian Hunter, the trader who was blamed for the collapse of $9bn hedge fund Amaranth Advisors two years ago, has taken ­advantage of last month’s plunge in commodity prices to help propel the year-to-date return at the fund he now advises to 230 per cent.

The Peak Ridge Capital Commodities Volatility fund, which Mr Hunter advises, returned 24 per cent in July as commodities prices fell 10 per cent for the month.

The prices were down 19 per cent from their peak on July 3rd – the biggest monthly decline since March 1980, measured by the Reuters-Jefferies CRB Index.

Slumping demand and steadily rising inventories sent the prices for contracts ranging from oil to soyabeans plunging in July, suggesting that the six-year-old commodity bubble may have burst.

Several other hedge funds with short positions in commodities also took advantage of the trend to post stellar returns.

Among them was Paul Touradji’s Capital Management fund, which gained 6.5 per cent over the month according to investors.

However, Ospraie Management’s $3bn flagship fund fell 13 per cent to bring year-to-date losses to 15 per cent. The company, run by star manager Dwight Anderson, manages a total of $9bn.

Many of the hedge funds that performed badly last month did so as a result of a long energy position, a short position on the banking sector, or some combination of the two.

If a trader had been long in the Dow Jones energy index and short in the Philadelphia Stock Exchange banking index in equal amounts, their loss would have been almost 30 per cent for the month.

The outperformance of Mr Hunter and others came as hedge funds in general endured a difficult month. Morningstar said that last month was the worst since January 2003, with its Morningstar 1000 Hedge Fund Index falling more than 3 per cent.

Mr Hunter, a 34-year-old Canadian energy trader, who earned about $100m in 2005, contributed to the downfall of Amaranth through a disastrous short position in natural gas futures. Amaranth became the biggest hedge fund collapse so far.

Mr Hunter serves as a consultant on modelling and strategy to Peak Ridge, which is based in Boston and is active in hedge funds, private equity and real estate. The company describes its hedge fund as the only hedge fund offering true exposure to commodity volatility.

Its 230 per cent year to date performance makes it one of the most outstanding hedge fund performers of the year so far as several other funds struggle.

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